Business Insights

June Market Outlook

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BEEF

General Comments

According to the USDA’s monthly Cold Storage report, beef stocks were reported at 471.5 million pounds, up 7.5 million, or 1.6%, from March and slightly above the average of analysts’ expectations. Beef stocks were 2.9% above the year-ago figure. The five-year average change in beef stocks in April is a decline of 4.3 million pounds. Beef stocks were 1.4% above the five-year average of 465 million. This report was seen as neutral for prices.

As of last Wednesday, cash traded small amounts at $114 live and $180 dressed. This is lower than the previous week. Current bids, as of publication, are $108 while the offers stand at $115. The overall feel is that cash cattle will trade lower. This should allow for packers to lower their prices in the event they need to move product.

Loins

Top Butts:Selects moved up significantly, closing the gap on Choice Butts which were slightly lower. Seasonally, this item tops out this week or next. Short Term: Mixed pricing.

Strips: Choice Strips continued to be supported by seasonal demand. Prices were higher on the week. Selects were steady. Strips typically move higher this week, and then start to move lower. Short Term: Steady to Higher pricing.

Tenderloins: Tenderloins continue to chop lower as demand is seasonally switching to other cuts. Supplies are ample. Short Term: Steady to lower pricing.

Tri-Tips: Tri-Tips were higher with Choice experiencing significant gains. Although Choice is much higher than last year, demand continues to be great. Seasonally, prices typically move higher until late-June. Short Term: Steady to higher pricing.

Ribs

Ribeyes: Select Ribeyes moved higher while Choice maintained their high value. Improving temperatures and sunshine are helping retailers move their supplies. Short-Term: Steady to higher pricing.

Chucks

Chuck Rolls: Choice was firm while Select moved lower. Prices typically bottom in the next week or two, but prices are much higher than they have been in recent years. This market is export-dependent which may be a concern come July. Short Term: Steady pricing.

Teres Majors: Choice prices migrated lower last week; Selects recovered from their steep drop the week before. Expectations are for prices to move lower as we move further into late spring and early summer. Short-Term: Steady to softer pricing.

Briskets: Brisket prices continue to edge higher as Memorial Day demand is the most supportive force. Prices typically move higher from now until July 4th on grilling features. Large forward sales suggest brisket prices could firm again this year. Short Term: Higher pricing.

Thin Meats

Ball Tips: Ball Tips, both Choice and Select, chopped sideways last week. Supplies are ample for a weakening demand. Short Term: Steady to lower pricing.

Flap Meat: Choice prices were steady, while Selects were much lower. Expectations are for lower pricing. Supplies are ample. Short Term: Lower pricing.

Skirt Meat: Both Outside and Inside skirt meat were lower last week. Outside skirt prices continue to be elevated with aggressive buying of any price breaks. Prices are deemed expensive relative to recent years. Short Term: Steady pricing.

Flank: Prices were slightly lower last week. A seasonal top may be in place as Flanks typically move lower from now until November. Short Term: Steady-lower pricing.

Rounds

Peeled Knuckles: Prices were steady with a weak undertone. Expectations are for lower pricing in the future, but prices are near levels that spur demand. Short Term: Neutral to lower pricing.

Inside Rounds: Prices were lower last week with Selects experiencing greater losses. As fed slaughter continues at an elevated rate, round prices are starting to come under a little pressure. Summer is often a slower demand period for round cuts. Short Term: Steady to weak pricing.

Bottom Round Flats: Both Choice and Selects were steady with a firm undertone. Prices are at levels that spur interest. Bottom Round Flats typically bottom over the next couple of weeks. Short Term: Steady to firm pricing.

Eye of Rounds: Prices were lower last week as supplies overwhelmed a weak demand. Expectations are for prices to chop sideways to higher over the next couple of months. The seasonal bottom may be in place. Supplies should be sufficient. Short Term: Steady pricing.

Grinds

Prices of Fresh 50s are under some pressure as retailers appear to have their Memorial Day needs met. Expectations are for prices to migrate lower through June. Fresh 90s saw good demand from foodservice and prices chopped higher. Demand continues to be better than expected. Short Term: Steady to lower pricing on 50s; Steady pricing on 90s.

Poultry

General Comments

According to the USDA’s monthly Cold Storage report, chicken stocks were reported at 866 million pounds, down 0.6% from the previous month and 8.8% over a year ago. Turkey stocks were up 6.6% from end-March and 4.6% above a year ago. Whole turkeys in the freezer warehouses as of April 30 were reported at 248 million pounds, up from 218.8 million the previous month and 217.1 million pounds a year ago. Turkey breast meat in storage was at 102.5 million pounds, up from 100.3 million the previous month and below the 105.8 million pounds a year ago. The report was deemed slightly bullish for prices.

The USDA is forecasting chicken output this summer to be 1.9% better than a year ago. Jumbo breast meat prices have been softer as sellers compete for orders. Demand for whole fryers and cut up chicken has diverted supply away from boning. Supplies of small and medium breast are tight and prices are firm. The wing markets are pricing at levels not seen since August 2014 due to uninspiring demand and better inventories.

Wogs

Whole birds and WOGS were steady with a firm undertone last week, experiencing slight increases. Although Memorial Day is not much of a chicken holiday attractive prices have supplies barely able to meet demand. Expectations are for these markets to move sideways until some seasonal strength occurs later in the summer. Short-Term: Steady pricing.

Breast Meat & Tenderloins

Jumbo breast meat is feeling the pressure of supply and has been losing ground the past several days. Tenders were soft with good supply and demand is in balance. Smaller sized meats have not trended or showed the same weakness. Expectations are for these lower values to persist into mid-June before finding some strength. Short-Term: Steady to softer pricing.

Wings

Wings of all sizes are experiencing some softness with a continued lack of demand and interest. Current levels are significantly below last year and at very attractive levels given the past couple of years. Expectations are for wing values to move higher the next few weeks, as summer promotions and inventory building starts to occur. Short-Term: Steady to firm pricing.

Thighs

Improved restaurant demand has steadied out prices for thigh and leg meat. Leg quarter firmed up last week after recent declines. Expectations are for steady to firmer pricing as seasonal demand, improved exports, and labor shortages all become supportive forces this time of year. Short-Term: Steady to firmer pricing.

Turkey Whole Birds

Prices are steady with a firm undertone. Spot markets are stable, but the deferred shipment market is firm with production declines on the whole bird hen side. If this trend continues, look for prices to be supported. Short-Term: Steady to firm pricing.

Turkey Breast Meat

Breast Meat prices steadying after weeks of prices increases were seen on the fresh product thus moving a higher cost to further processed products. Some of that processing demand has switched over the frozen side, which has tightened availability there. If warm weather continues and deli demand occurs, prices could again move higher. Short-Term: Steady-firm pricing.

Pork

General Comments

According to the USDA’s monthly Cold Storage report, pork stocks at the end of April were reported at 641 million pounds, an increase of 5% from the previous month. The report showed pork holdings 8.7% above the year-ago figure. Ham stocks at the end of April were reported at 112.3 million pounds, up 16 million from the previous month and 500,000 below a year ago. The latest figure was 5.7% below the five-year average of 118 million pounds. Bellies in cold storage were reported at 64.6 million pounds, an increase of 5.4 million pounds from the previous month. The belly inventory is now up 31.1 million pounds from the record low end April figure set a year ago at 33.5 million.

Total pork production for the week ending May 19, 2018 was estimated at 502.9 million lbs. This was 1.4 percent higher than the previous week and 5.6 percent over last year. Average live weights, at 286 pounds, were a pound less than last week and 4 pounds higher than last year.

The USDA is calling pork production during the summer to be 4.8% more than 2017. Though pork belly stocks are larger than a year ago, big retail bacon feature activity should support prices this summer. Seasonal increases in demand and decreases in production have most items moving higher.

Loins

Pork loins stalled in their seasonal rally last week. Supplies were more than ample to meet demand. Prices typically rally from now until August, but less expensive chicken breasts will be a headwind for prices. Short Term: Steady to firm pricing.

Tenders

Retail promotions and better weather are supporting this market as prices chop higher. Current price levels are still very in comparison to last year and the 5-year average for this time of year. Expectations are for firm pricing through June. Short Term: Neutral to firm pricing.

Butts

Butts continued strong again last week after 5 weeks of sharp price increases. Prices are at the highest level they have been since the summer of 2015. Typically, this item moves lower after the first week of June. Expectations are for steady and then lower pricing as we move into the warmer summer months. Short Term: Steady to lower pricing.

Belly

This market continues to trend higher as retailer features and seasonal decreases in harvesting are tightening up spot supplies. The seasonal bottom is probably in place. Short-Term: Steady to firm pricing.

Ribs

The rib complex adjusted lower ever slow slightly after 3 weeks of precipitous gains. Both Spareribs and Backribs are still in good demand. Fresh supplies are short meeting demand without price adjustment. The trend is up and should be intact through June. Short Term: Steady to firm pricing.

Hams

Ham prices bounced back higher on good price-point demand from ham processors and retail features. Typically, prices trend higher through June as deli demand improves, but this market is also export-dependent. Short Term: Steady to firm pricing.

Dairy

Butter

Although ice cream and other Class II processors are steadily pulling large butterfat intakes, butter output continues to be active across the country with sufficient cream volumes clearing into churns. Industry contacts report buyer interest for butter is firm, including inquiries from international shoppers. Domestic retail and food services sales are solid. Bulk and print butter inventories are generally in balance to meet the solid demand. Short Term: Steady to firm pricing.

Cheese

Cheese demand is positive in the Midwestern and Western regions, while stable to slower in the East. Steady to somewhat bullish markets, in recent weeks, have been the catalyst for some buyer confidence, according to Midwestern cheesemakers. Cheese production is up in both the East and West, but some Centrally located cheese plant managers have cut back for updates and maintenance, or simply to manage inventories during what is typically a slower sales season. Milk intakes are not slowing down in the flush season, and with Memorial Day weekend approaching, milk is expected to be (even more) readily available. Short Term: Mixed pricing.

Shell Eggs

Shell eggs “seem” to be stabilizing after precipitous declines. According to the USDA’s monthly Chicken and Eggs report, table-type egg layer flocks increased 2.4% during April, to total 323.3 million hens. Eggs Per Layer is still running about 1.5% below year ago due to holding older birds and flock rotations to increase flock numbers for cage free production. Table egg production for April totaled 637.2 million dozen eggs, a 3.6% increase from year prior. Prices are nearing the lows of 2017 and 2016. Given the wild rides the last couple of years, current prices offer a great opportunity for buyers. Short-Term: Steady pricing.

Milk & Cream

In the Midwest and Northeast, fluid milk output is edging up as spring temperatures are gracing the region. Class I sales are steady to lower in the country, as educational institutions are closing for the school year. Arizona milk production is steadily decreasing, however Idaho, Utah and Colorado farm milk output continues to climb. Processing plants throughout the U.S. are working well to handle the available milk intakes.

Cream demand is firming as cream prices have increased and ice cream production is picking up. In addition, some Midwestern market participants report cream loads coming from the West are not as accessible recently. Some reports suggest that due to the heat in Arizona, cream shipment is not as frequent. Short Term: Steady to firm pricing.

Seafood

Shellfish & Shrimp

Foreign Shrimp: Overall, supplies in the shrimp complex are sufficient with some exceptions on the larger counts. Most markets are steady with a soft undertone.

Farmed White: 36-40 and 41-50 count are steady with a weak undertone. Smaller count shrimp are steady. The Asian white shrimp market continues to be oversupplied.

Farmed Black Tiger: The market is steady with a firm undertone. Larger count supplies are short of meeting demand.

Wild, Gulf of Mexico: Most of the market is steady. Exceptions include the 10-15 and larger count HLSO brown shrimp, which are well-supported. Also, lower offers are starting to develop on 36-40 and smaller count shrimp. White shrimp were also unchanged, but there’s pressure associated with new season production. There is a weak bias in anticipation of an increase in white shrimp supply. Short-Term: Softer pricing on most shrimp with a few exceptions.

North American Lobster: The tail market continues to be about steady. Processors are starting to see a steadier supply as production is increasing from the new season. The meat market was steady. Short-Term: Mixed pricing.

Warm Water Lobster Tails: Supplies are drying up as we are out of season. Scarce supplies are mainly being reserved for contractual obligations. Expect firm prices until a new season of production begins in July. Short Term: Steady to higher pricing.

Live Lobster: Prices for chicks, quarters and halves for both the New England and Mid-Atlantic regions continue to move lower. Some select sizes in New England are firm as many have been putting these sizes away for the summer months. In contrast, selects in the Mid-Atlantic region are trading at their 52 week low. Short Term: Mixed pricing.

Prices for Mid-Atlantic and New England lobsters were softer as supplies build from new season openings. Supplies are fully adequate for a fair demand. Short Term: Steady to softer pricing.

Scallops: Limited landings of the U.S. origin sea scallop 20/30 ct. size continue to demand premiums at a higher than normal price range, coming in above 10/20 count scallops. The abundance of larger sized U.S. origin sea scallops is now affecting Canadian origin sea scallops, where prices on 10/20 counts have adjusted lower to compete with the U.S. landings. Short Term: Mixed pricing.

King Crab: King crab supply is very short to none of the USA production. Most at the moment is being imported from Russia. The live trade from Russia to China is impacting the Russian cost. For now, costs remain elevated overall with supply adequate. Short Term: Neutral to firm pricing.

Snow Crab: 2018 Q1 year-to-date volume of snow crab is currently down 16.6 percent. This percentage may continue to decrease throughout the year because of decreased available supply out of Canada, the main driver in this category. The undertone remains firm. Short Term: Steady to firm pricing.

Crab Meat: Both the blue and red swimming crab meat markets continue to be firm. Rising replacement costs for blue swimming crab meat inbound to the U.S. continue to force many sellers to raise offering levels. In addition, a seasonally strong demand is causing inventories to thin gradually as we approach summer. Red swimming crab meat market also rallied on a strong demand. The Venezuelan fresh crab meat firmed due to a seasonally high demand going into Memorial Day weekend. Short Term: Steady to firm pricing.

Finfish

Salmon: The West Coast whole fish market for 10-up fish was lower, while the balance of the market is about steady. The Northeast whole fish market is steady with a weak undertone. Supplies of larger whole fish are reported to be ample for a quiet demand. The European whole fish moved lower on Norwegian whole fish. Supplies in this market are adequate for a quiet demand ahead of the U.S. Memorial Day holiday. The Scottish market is firm. The Faroe Island market was steady. The Chilean whole fish market is also steady. The Chilean fillet market adjusted lower. Supplies are more than ample for a slow demand. In contrast, the Chilean frozen fillet market is firm on all sizes. Available supplies are light. Short Term: Mixed pricing.

Atlantic Cod: Frozen cod loins have been firm but steady on cost as that fishery has started to rebound. Demand from Lent was strong. Buyers await arrivals from the new season in late-May to early-June. A total allowable catch reduction out of the Barents Sea by as much as 13% has put considerable pressure on cod supply and cost world-wide. Short Term: Neutral-firm pricing.

Pacific Cod: Alaskan A season opened in January but supply remains tight and costs have firmed, this is partly due to decreased quota in other regions of the world. Costs have remained elevated even after Lent and are expected to remain this way through the end of the year. Short Term: Firm pricing.

Pollock: Expectations are for prices to move higher as we start to move into the summer season. With lack of cod availability, many are switching to the cheaper priced Pollock. While Pollock still is at a cost savings and a value this added pressure on supply has resulted in increased costs for this species as well. Short Term: Steady to firmer pricing.

Basa: Prices are still increasing across the board on all sizes of frozen basa fillets due to extreme supply shortages out of Vietnam, however not as drastically as we have been seeing in the past few weeks. Short Term: Firm pricing.

Catfish: The prices for imported catfish are steady; however, the future is uncertain with the political climate and inspection programs. On the domestic side, production is picking up and there is a good amount of inventory in the country. Larger fillets are getting tight, but it will just be a matter of time before the fish grow to get to 9-11 and 11-up sizes. Expectations are for large supplies in 2018. Short Term: Neutral pricing.

Whole Fish Tilapia: Frozen tilapia fillets from China have strengthened a bit due to limited supply in the U.S. as well as new product coming into the market arriving at higher prices. Short Term: Neutral to firm pricing.

Mahi Mahi Fillets: Demand for imported mahi is strong. Prices are firm. Short Term: Steady to firm pricing.

Grains & Oils

Grain & Crop Summary

Grain markets continue to shift higher on encouragement for a pick-up in Chinese soybean export business, but also on continued money inflows as the technical charts are all seeing a positive tone and the path of least resistance is to the upside.

Soybean traders received their first interest in U.S. soybeans from China’s state grain buyer, Sinograin, since early April as the improved trade environment brings them back to the market. Inquiries were said to include old crop and new crop U.S. soybean supplies, although no purchases have yet been confirmed. Additionally, sources said the previous restrictions put on Cofco on buying U.S. soybeans have been lifted, as well. Some interest in U.S. DDGS by Chinese traders was also noted.

The 2017 U.S. trade deficit with China was $375 billion, while talk that a “framework agreement” would trim the deficit by $200 billion is being discussed. China could potentially increase annual U.S. soy imports to more than 40 to 50 million metric tons (mmt), according to the chief analyst with Shanghai JC Intelligence Co. It purchased almost 33 mmt from the U.S. last year and 50.9 mmt from Brazil. China could also increase its ethanol imports as the government expands its use in vehicles nationwide by 2020, according to Shanghai JC Intelligence. Purchases surged in the first quarter as buyers sought to secure supply ahead of extra tariffs and as expensive domestic corn made imports attractive. However, even if China imported nearly all of the U.S. 2018/19 soybean carryout, it would only trim the deficit by about $4 billion, meaning China will quite likely need to buy more U.S. ethanol, corn, sorghum, cotton and meats in addition to airplanes, which are their largest U.S. exports. President Trump warned the market Monday in his tweet that China was going to buy all U.S. farmers would produce and if he’s right, we suspect end users will be more inclined to extend coverage on minor dips while farmers will be prone to delay further sales until after summer corn pollination.

One of the primary obstacles to a bull market for the 2018/19 corn crop was bearish fundamental news for soybeans tied to trade issues with China. With that threat dissipating, traders will once again focus on a global corn situation showing one of the tightest years in 45 years that could get worse before it gets better. It may not take much of a weather issue to spark a major rally in corn. Respected analytical firm Safras and Mercado sees Brazil’s corn production at 79 mmt, down from 98.5 mmt last year and from the USDA’s current 87 mmt estimate. If the Brazilian crop is down another 8 mmt and China’s production is closer to Chinese government estimates of 210 to 213 mmt vs. the USDA at 225 mmt, the global corn stocks/use ratio drops to the lowest level since 1973/74. The scenario of decreasing world corn stocks/ use ratio for the first time in five years to surprisingly low levels coupled with the Chinese trade negotiations bears close monitoring.

Officials from the USDA, EPA and Energy departments are set to meet today in an attempt to finalize tweaks to the U.S. biofuel policy as a result of the series of meetings in recent months at the White House.

Soybean Oil

The International Grains Council said Thursday that it has trimmed its forecast for global grain production in 2017/18 to 2,091 million metric tons (mmt) due to lower expected soybean production. The new forecast is a decrease of 2 mmt from the previous 2,093 mmt forecast and a 2.3% drop from the previous season’s record 2,139 mmt. This is supportive for soybean oil prices.

Canola

Saskatchewan’s canola seeding was reported at 57% complete. However, despite rains last week across Western Canada, large swatches of canola missed out which is limiting gains as concerns mount about crop failure. Germination in some areas is quite poor and additional moisture is needed. Weakness in the Canadian dollar provided support. This is supportive for canola oil prices.

Palm Oil

(Bloomberg) – The Indonesian government is reportedly planning to move the government-mandated biodiesel blend to 25% from 20% currently in early 2019. As a follow-up to yesterday’s Indonesian statement that the country’s biodiesel blend will increase to 25% from 20% effective at the start of 2019, the Indonesian Palm Oil Association expects the increase to require an increase in biodiesel production of around 750,000 kiloliters, or around 200 million gallons. This is friendly for palm oil prices.

Produce

Rain in the Southeast

Scattered thunderstorms are expected across Florida and Georgia this week before more heavy tropical moisture pushes into the Southeast over Memorial Day weekend. Production across Florida and Georgia will be impacted.

  • Markon First Crop Bell Peppers, Cucumbers, Squash, and Tomatoes will be limited; packer label is being substituted as needed
  • Most crops will have fully transitioned north by this weekend
  • Lighter rainfall is expected in Georgia compared to Florida, but primary growing regions are still forecast to receive 0.25-0.50 inches of rain every day for the next ten days
  • Muddy and wet field conditions will delay the harvesting of bell peppers, cabbage, cucumbers, melons, squash, and tomatoes
    • Bell pepper prices will remain elevated through next week; prices for other items are poised to rise

Lemons

The lemon market continues to inch up. Offshore Chilean lemons will be available in mid-June.

  • Markon First Crop and Markon Essentials Lemons are available
  • The primary growing region has fully transitioned from San Joaquin Valley, California to the Southern California coastal region
    • Increased moisture, high temperatures, and strong winds typically cause more quality issues
    • Shelf-life is shorter than normal at this time of year
  • Expect prices to continue rising through the summer
    • Offshore Chilean lemons will start shipping in mid-June
    • There is no difference in pack size, color, or taste in domestic and offshore fruit
    • Mexican lemons will enter the market in early August

Tomatoes

It’s that time of year where we have the tomato growing areas transitioning from one area to new summer growing regions. Both Mexico and Florida produced bumper winter crops. What’s still coming from Mexico and crossing through Nogales is the last of the old crop tomatoes. Florida started their transition into the Palmetto Ruskin area this week but have not been able to pack due to daily rain.

We will see California get started the week of 6-18. From now until then we will only see decreased production in all current growing regions. Baja has started with a few tomato products but will not hit their stride until July. The next 3-4 weeks should be an active period for all tomatoes. Markets will be unsettled until Florida recovers from the recent rains and California starts pumping volume.

Highlights

  • Markon First Crop® (MFC) Premium Iceberg Lettuce weights are higher on average than the rest of the industry (47 to 50 pounds compared with 44 to 47 pounds).
  • New crop Mexican green and red seedless grapes will be available this week. MFC Lunch Bunch Grapes will ship out of Chile until mid-June.
  • California stone fruit hits the market this week. Nectarines and peaches will start shipping first, followed by plums the week of June 11.

Produce Highlights

Bell Peppers

  • Green bell prices remain elevated, but are starting to ease; supplies are tight in most regions. Expect high markets for one more week.
  • The red bell market is lower; West Coast supplies are sufficient.

Iceberg Lettuce

  • The Salinas Valley iceberg lettuce season is hitting its stride; supplies are readily available.
  • The market will ease this week.

Onions

  • Ample supplies of freshrun MFC Red and Yellow Onions are available in California and Texas.
  • The New Mexico onion season will get underway this week.

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